China's Potential Air Defense System Sale to Turkey and Implications for the United States

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U.S.-China Economic and Security Review Commission Staff Report

December 18, 2013

China’s Potential Air Defense System Sale to Turkey and Implications for the United States

Author: Ethan Meick, Policy Analyst, Military and Security Affairs

Disclaimer: This paper is the product of professional research performed by staff of the U.S.-China Economic and Security Review Commission, and was prepared at the request of the Commission to support its deliberations. Posting of the report to the Commission’s website is intended to promote greater public understanding of the issues addressed by the Commission in its ongoing assessment of U.S.-China economic relations and their implications for U.S. security, as mandated by Public Law 106-398 and Public Law 108-7. However, the public release of this document does not necessarily imply an endorsement by the Commission, any individual Commissioner, or the Commission’s other professional staff, of the views or conclusions expressed in this staff research report.

The Turkish Undersecretariat for Defense Industries in Ankara, Turkey, chaired by Turkish Prime Minister Recep Tayyip Erdoğan, recently announced its selection of a Chinese state-owned company to build Turkey’s first long-range air defense system. The deal, if realized, likely would strain Turkey’s relations with the United States and Europe, boost China’s arms industry, and strengthen ties between Turkey and China.

Details of Turkey’s Proposed Weapons Deal with China

In the proposed deal, China Precision Machinery Import and Export Corporation (CPMIEC) would provide four Fangdun (FD)-2000 air defense system batteries,1 each consisting of missiles, launchers, radars, sensors, vehicles, and support systems. The FD-2000 is the export version of China’s HQ-9 system.2

Turkey selected CPMIEC over U.S. companies Raytheon and Lockheed Martin, which offered the Patriot Advanced Capability-3 (PAC-3); Russia’s Rosoboronexport, which offered the S-400;* and the Italian and French company Eurosam, which offered the SAMP/T Aster 30.† Murad Bayar, Turkish Undersecretary of Defense Industries, explained CPMIEC’s bid was “perfectly in compliance with [Ankara’s] terms and conditions,” and beat the rival bids in terms of “price, technology, local work share, technology transfer and credit financing terms.” 3 China’s willingness to co-produce the FD-2000 in Turkey and transfer the technology were particularly important factors in Ankara’s decision, since Turkey seeks to increase its defense industries’ self-sufficiency. Since Turkey joined NATO in 1952, the United States has been Ankara’s main source of advanced weapon systems.4

Figure 1: Bids for Turkey’s Long-Range Air Defense System, in Order of Turkey’s Stated Preference5

Country Company Missile System Range Proposed Cost‡

FD-2000 200 km up to an China CPMIEC $3.44 billion (HQ-9 export variant) altitude of 30 km

>100 km up to an Italy/France Eurosam SAMP/T Aster 30 $4.4 billion altitude of 20 km

Raytheon/ 45 km up to an United States PAC-3 $4.6 billion Lockheed Martin altitude of 15 km

400 km up to an Russia§ Rosoboronexport S-400 $8.4 billion altitude of 50 km

* Some sources indicate the Russian offer was for an S-300 or an advanced version of the S-300. Agence France-Presse, “Turkey defends choice of Chinese missiles,” October 2, 2013. http://www.hurriyetdailynews.com/turkey-defends- choice-of-chinese-missiles.aspx?PageID=238&NID=55532&NewsCatID=338; Itar-Tass, “Rosoboronexport ready to cooperate with Turkey in joint production of air defense systems,” May 8, 2013. http://en.itar-tass.com/world/693232. † See Figure 1 for details of the bids offered. ‡ The proposed costs are calculated based on Prime Minister Erdoğan’s remarks on October 24. Today’s Zaman, “Erdogan says Turkey open to other missile bids only if China backs out,” October 25, 2013. http://www.todayszaman.com/news-329712-erdogan-says-turkey-open-to-other-missile-bids-only-if-china-backs- out.html. § Undersecretary Bayar said this bid is no longer being considered due to its high price and incompatibility with Turkey’s requested terms. Burak Ege Bekdil, “Controversy Deepens Over Chinese Air Defenses For Turkey,” Defense News, October 3, 2013. http://www.defensenews.com/article/20131003/DEFREG01/310030021/Controversy-Deepens- Over-Chinese-Air-Defenses-Turkey.

NATO’s Deployment of Patriot Air Defense Systems in Turkey

Although Turkey currently does not have a long-range air defense system, NATO since early 2013 has operated six PAC-3 air defense batteries in Turkey, along its border with Syria.** NATO deployed these systems after Ankara requested assistance defending its airspace from Syria, which shot down a Turkish jet in June 2012 and killed five Turkish civilians with mortar shells in October 2012.6 The United States in November 2013 extended the deployment of its two Patriot batteries in Turkey through 2014.7

U.S. and NATO Concerns about the Proposed Deal

U.S. and NATO officials as well as members of Congress have questioned Turkey’s plan to integrate the FD- 2000 with NATO’s missile defense architecture.†† Integration would require Chinese access to U.S. and NATO classified or export-controlled munitions data in order to facilitate the exchange of information between the NATO and Chinese systems. Furthermore, Chinese personnel would have to install and repair the system and train Turkish operators, potentially providing opportunities for Chinese intelligence collection on NATO personnel and facilities.8

 On November 19, U.S. Senator Mark Kirk (R-IL) offered an amendment to the Senate version of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2014 that would prohibit funds from being used to “integrate missile defense systems of the People’s Republic of China into United States missile defense systems.” The amendment included a “sense of Congress” that Chinese surface-to-air missile (SAM) systems “should not be integrated” with NATO’s missile defense architecture.9 This proposed amendment was later included in a new NDAA agreement reached by the Armed Services Committee leaders of both the House of Representatives and Senate. The new NDAA agreement, including the prohibition of FY14 funds for missile defense integration with Chinese systems, was passed by the House of Representatives on December 12, 2013. As of the publication of this report, the agreement awaits consideration in the Senate.

 In an October 11 letter to the Obama Administration, seven U.S. Senators wrote, “Since Turkey is fully integrated into NATO’s missile defense network … we are concerned about the risk of third- country access to NATO and U.S. classified data and technology … If Turkey proceeds with this procurement, we must take steps to protect the security of the United States and our NATO allies. Such steps might include Turkish expulsion from the NATO Air Defense Ground Environment and intensified scrutiny of all Turkey-NATO security cooperation activities.”‡‡

** See Appendix 1 for a map of the deployment. The United States, Germany, and the Netherlands operate Turkey’s six PAC-3 battalions. 19 countries have or operate Raytheon’s Patriot air defense systems (PAC-2 and PAC-3): Bahrain (PAC-3), Denmark (PAC-3), Germany (PAC-3), Greece (PAC-2 and PAC-3), India (PAC-3), Israel (enhanced PAC-2), Japan (PAC-3), Jordan (PAC-3), Kuwait (PAC-3), the Netherlands (PAC-2 and PAC-3), Poland (PAC-3), Qatar (PAC- 3), Saudi Arabia (PAC-2), South Korea (PAC-2), Spain (PAC-2), Taiwan (PAC-3), Turkey (PAC-3), United Arab Emirates (PAC-3), and the United States (PAC-3). Missile Threat, “Patriot,” April 13, 2013. http://missilethreat.com/defense-systems/patriot-2/. †† In May 2012 at the Chicago NATO Summit, President Obama said the NATO missile defense system reached “interim capability.” NATO countries committed to upgrading collective defense, which depends on integration between missile defense systems. Deutsche Welle, “NATO declares first stage of missile shield operational,” April 21, 2013. http://www.dw.de/nato-declares-first-stage-of-missile-shield-operational/a-15964619-1; North Atlantic Treaty Organization, “Chicago Summit Declaration,” May 20, 2012. http://www.nato.int/cps/en/natolive/official_texts_87593.htm?mode=pressrelease. ‡‡ See Appendix 2 for the full text of the letter. House Armed Services Strategic Forces Subcommittee Chairman Mike Rodgers (R-AL) also said the announced deal “[sent] a chill through the spine of members of Congress who care about NATO and Turkey’s alignment to the West.” Rachel Oswald, “Congress Urges Hagel, U.S. to Block Turkey-China

 NATO Secretary-General Anders Fogh Rasmussen asserted, “What is important for [NATO] is that the system acquired by the individual country … must be able to work and operate with the systems in other countries. I expect that Turkey will also comply with that.”10

 U.S. Army Lieutenant General Frederick Ben Hodges, commander of NATO’s Land Command Headquarters, cited “cybersecurity concerns” about the proposed deal. He said, “NATO will never allow, in my view should never allow, a Chinese-designed system to be able to plug into the NATO Integrated Missile Defense System.”11

 Heidi Grant, U.S. Air Force deputy undersecretary for international affairs, said, “If [Ankara] select[s] a system that’s not interoperable, that’s their choice. They’ve chosen not to be interoperable. Our role is to make sure they’re informed of our recommendation of the best systems to be interoperable with the U.S.”12

Furthermore, the United States has levied sanctions against CPMIEC, prohibiting U.S. companies from conducting business with the Chinese firm. On February 13, 2013, the United States found CPMIEC in violation of the Iran, North Korea, and Syria Nonproliferation Act.§§ 13

 A senior U.S. diplomat in Ankara said, “Turkish entities to be involved in this program in partnership with CPMIEC would be denied access to any use of U.S. technology or equipment in relation to this program … No U.S. equipment would ever be sold or authorized to be used anywhere in the program.”14 This could effectively result in U.S. sanctions on elements of the Turkish defense industry and severely limit U.S. defense firms’ ability to conduct business in Turkey. For example, Raytheon’s partnerships with Turkish component suppliers for its Patriot SAM system could face the risk of cancellation.15

 In December 2013, Bank of America Merrill Lynch refused to advise Turkish defense firm Aselsan on its second public offering, writing in a letter to Aselsan, “If it is possible that you work with the Chinese company, we would not work with you.” 16 U.S. officials reportedly helped the U.S. company prepare the letter.17

 A U.S. Department of State spokesperson on October 7 said, “[W]e have conveyed our serious concerns about the Turkish Government’s contract discussions with the U.S.-sanctioned company for a missile defense system that will not be interoperable … with NATO systems or collective defense capabilities.”18

Turkey’s Response to U.S. and NATO Concerns

Ankara has dismissed U.S. and NATO concerns regarding the proposed deal, insisting CPMIEC’s SAM system should be allowed to be fully integrated with NATO’s missile defense architecture. Prime Minister Erdoğan explained: “Many NATO member states have Russian weapons in their inventories. If NATO is so sensitive about the issue it would remove the weapons from Russia in NATO’s own inventory.”19 Turkish officials also emphasized Turkey’s right to independently make decisions about its own national defense.

Anti-Missile Deal,” Global Security Newswire, October 11, 2013. http://www.defenseone.com/politics/2013/10/congress-urges-hagel-us-block-turkey-china-anti-missile- deal/71831/?oref=d-interstitial-continue. §§ CPMIEC has a long history of weapons proliferation and has faced U.S. sanctions repeatedly over the last two decades. For an overview of pre-2000 U.S. sanctions on CPMIEC and CPMIEC’s role in the Chinese arms export industry, see Evan S. Medeiros and Bates Gill, Chinese Arms Exports: Policy, Players, and Process (Carlisle, PA: Strategic Studies Institute, U.S. Army War College, August 2000), p. 46-48.

Turkish Deputy Prime Minister Bulent Arinc said, “…[W]hen it comes to the subject of defending Turkey … we have the power to take a decision without looking to anyone else.”20

Despite Ankara’s view that integration with the NATO air defense system is possible, Turkey appears willing to use the FD-2000 as a standalone SAM system if it does not receive better offers. Although Turkey’s ability to detect and assess air and missile threats would be less robust without access to NATO data,21 a standalone system nonetheless would provide a limited defensive capability. Furthermore, Turkey would fill knowledge and technology gaps in its defense and commercial industries, thus potentially enabling Turkey to produce future air defense systems indigenously.

Chinese Arms Exports Progress

Ankara’s selection of CPMIEC over its U.S., European, and Russian competitors in the initial round of bidding marks a political victory for Beijing and progress toward the Chinese defense industry’s goal of becoming a leading exporter of high-end arms and equipment. An article in China’s official military press notes, “[E]ven if this transaction fails, China has already won its spurs, since the order was won in a formal bidding process … This is invaluable promotional material which strongly demonstrates that the defense industry of China has found its position among the great powers of the world.”22

China, long among the global leaders in small arms and ammunition sales, is poised to become a major seller of advanced military technology due to its ability to offer “good enough” equipment at a lower price than its competitors.23 However, China’s success in marketing these systems will depend on potential customers’ perception of the quality and reliability of these unproven systems compared to Western alternatives.

Prospects for the Deal to Materialize

Although Ankara announced it had selected CPMIEC to build Turkey’s air defense system in September, Turkey and China have yet to finalize the deal. Turkish officials remain optimistic about CPMIEC’s bid, estimating a deal could be signed by April 2014, with delivery of the SAM system by 2017.24 Undersecretary Bayar assessed it is “highly likely” that Turkey will sign the contract with CPMIEC.25 Similarly, Prime Minister Erdoğan said Turkey would only stop the deal if the Chinese company decided to withdraw its offer.26

Nevertheless, Ankara in late October extended the bidding deadline to January 31, 2014,27 almost certainly due to U.S. and NATO pressure. Ankara also may be leveraging negotiations with CPMIEC to extract better terms from the competing companies.28 Although Turkey likely prefers the proven reliability and NATO integration of the Patriot system to an untested Chinese system, CPMIEC’s offer probably will retain an advantage due to its generous co-production and technology transfer terms and lower price.

 A Eurosam official told the press that the European defense firm is working to enhance its bid, “especially in view of Turkish sensitivities about technology transfer.” 29 According to Undersecretary Bayar, Eurosam could be the preferred option if the CPMIEC deal fails.30

 Raytheon and Lockheed Martin reportedly have strengthened their bid since Turkey’s initial decision by including co-production arrangements.31 However, the U.S. companies remain in third place behind Eurosam due to the Patriot’s higher price and the firms’ reluctance to provide Turkey with complete technology transfer terms.32

Implications for China-Turkey Relations

The proposed deal would support Turkey’s strategy to broaden its relations beyond the United States and Europe. However, even if the FD-2000 deal proceeds, political and economic issues will continue to complicate relations between China and Turkey in the near term. Points of contention include Beijing’s support for the Assad regime in Syria, an approximately $18 billion trade deficit favoring China, and Turkey’s perception of Beijing’s hostility toward the Muslim Turkic minority in northwest China.33

Appendix 1: Patriot Missiles Deployed in Turkey

Source: Stephen Fidler, “U.S. Guards Turkey From Syrians,” Wall Street Journal, February 5, 2013. http://online.wsj.com/news/articles/SB10001424127887324761004578286220004426246.

Appendix 2: Senate Letter to Secretary Kerry and Secretary Hagel

1 Richard Weitz, “Global Insights: Money, Not Realignment, Drives China-Turkey Missile Defense Deal,” World Politics Review, November 5, 2013. http://www.worldpoliticsreview.com/articles/13351/global-insights-money-not- realignment-drives-china-turkey-missile-defense-deal. 2 Carlo Kopp, “CPMIEC HQ-9 / HHQ-9 / FD-2000 / FT-2000 Self Propelled Air Defense System,” Air Power Australia, April 2012. http://www.ausairpower.net/APA-HQ-9-FD-FT-2000.html. 3 Burak Ege Bekdil, “Controversy Deepens Over Chinese Air Defenses For Turkey,” Defense News, October 3, 2013. http://www.defensenews.com/article/20131003/DEFREG01/310030021/Controversy-Deepens-Over-Chinese-Air- Defenses-Turkey. 4 Anders Fogh Rasmussen, “New NATO – new Turkey” (Ankara, Turkey, February 17, 2012), http://www.nato.int/cps/en/natolive/opinions_84334.htm. 5 SinoDefence.com, “HongQi 9 Surface-to-Air Missile System,” October 3, 2009. http://www.sinodefence.com/army/surfacetoairmissile/hongqi9.asp; MBDA Missile Systems, “Aster 30-SAMP/T Medium Range Surface-to-Air Missile,” November 2013. http://www.mbda- systems.com/mediagallery/files/aster_30_samp_t_ds.pdf; Global Security, “Specifications,” July 21, 2011. http://www.globalsecurity.org/space/systems/patriot-specs.htm; RIA Novosti, “Russia to Deploy 3 New S-400 Air Defense Regiments in 2014,” November 28, 2013. http://en.ria.ru/military_news/20131128/185111009/Russia-to- Deploy-3-New-S-400-Air-Defense-Regiments-in-2014.html. 6 North Atlantic Treaty Organization, “NAC Statement on the shooting of a Turkish aircraft by Syria,” June 26, 2012. http://www.nato.int/cps/en/natolive/news_88652.htm; North Atlantic Treaty Organization, “North Atlantic Council statement on developments on the Turkish-Syrian border,” October 3, 2012. http://www.nato.int/cps/en/natolive/news_90447.htm. 7 Reuters, “U.S. to keep Patriot missiles in Turkey for up to another year,” November 18, 2013. http://www.reuters.com/article/2013/11/19/us-usa-turkey-patriots-idUSBRE9AI00L20131119. 8 Bulent Aliriza and Samuel J. Brannen, “Turkey Looks to China on Air and Missile Defense?” Center for Strategic and International Studies, October 8, 2013. http://csis.org/publication/turkey-looks-china-missile-defense. 9 Rachel Oswald, “U.S. Senator Seeks to Prevent Use of Chinese Technology in NATO Missile Shield,” Global Security Newswire, November 20, 2013. http://www.nationaljournal.com/global-security-newswire/u-s-senator-seeks- to-prevent-use-of-chinese-technology-in-nato-missile-shield-20131120. 10 Meete Fraende, “NATO head expresses concern about Turkey’s Chinese missile deal,” Reuters, October 7, 2013. http://www.reuters.com/article/2013/10/07/us-turkey-china-defence-idUSBRE9960HO20131007. 11 Semih Idiz, “Turkey’s Choice: Chinese Missile Defense or NATO?” Al-Monitor, October 25, 2013. http://www.al- monitor.com/pulse/originals/2013/10/missile-nato-turkey-china-defense.html. 12 Andrea Shalal-Esa, “Turkey’s Chinese missile system won’t work with the US, NATO,” Reuters, November 21, 2013. http://www.reuters.com/article/2013/11/21/airshow-dubai-turkey-idUSL5N0J62IQ20131121. 13 U.S. Department of State, “Iran, North Korea, and Syria Nonproliferation Act: Imposed Sanctions,” May 29, 2013. http://www.state.gov/t/isn/inksna/c28836.htm. 14 Burak Ege Bekdil, “Turk Industry Could Face US Sanctions in China Air Defense Deal,” Defense News, November 19, 2013. http://www.defensenews.com/article/20131119/defreg01/311190033/Turk-Industry-Could-Face-US- Sanctions-China-Air-Defense-Deal. 15 Raytheon, “Ratheon Leaders Emphasize Productive Relationships With Turkey,” July 3, 2012. http://www.raytheon.com/newsroom/feature/rtn12_amturkish/. 16 Anadolu Agency, “Merrill Lynch said no to Turkish defense firm ‘unwillingly’,” December 16, 2013. http://www.hurriyetdailynews.com/merrill-lynch-said-no-to-turkish-defense-firm-unwillingly- .aspx?pageID=238&nID=59679&NewsCatID=345. 17 Erdal Sağlam, “Merrill Lynch refuses to serve Turkish defense firm,” Hurriyet Daily News, December 5, 2013. http://www.hurriyetdailynews.com/merrill-lynch-refuses-to-serve-turkish-defense- firm.aspx?pageID=238&nID=59060&NewsCatID=344. 18 U.S. Department of State, “Daily Press Briefing,” October 7, 2013. http://www.state.gov/r/pa/prs/dpb/2013/10/215183.htm#TURKEY. 19 “Turkish PM rebukes NATO over China missile deal criticism,” Hurriyet Daily News, October 23, 2013. http://www.hurriyetdailynews.com/turkish-pm-rebukes-nato-over-china-missile-deal- criticism.aspx?PageID=238&NID=56691&NewsCatID=338 . 20 Al Jazeera, “US concerned over Turkey-China missile deal,” October 1, 2013. http://www.aljazeera.com/news/europe/2013/10/us-concerned-over-turkey-china-missile-deal- 201310102650403147.html.

21 Burak Bekdil, “Chinese air defenses in Turkey a ‘virus’ for NATO,” Hurriyet Daily News, October 15, 2013. http://www.hurriyetdailynews.com/chinese-air-defenses-in-turkey-a-virus-for- nato.aspx?pageID=238&nID=56239&NewsCatID=483. 22 Jiefangjun Bao (PLA Daily), “JFJB: ‘Chinese Military-Industrial Enterprises Get Closer to NATO,” October 13, 2013. OSC ID: CHN2013100931581494. http://www.opensource.gov. 23 Edward Wong and Nicola Clark, “China’s Arms Industry Makes Global Inroads,” New York Times, October 20, 2013. http://www.nytimes.com/2013/10/21/world/asia/chinas-arms-industry-makes-global-inroads.html. 24 Tulay Karadeniz and Johnathon Burch, “Turkey ‘highly likely’ to sign Chinese missile deal: official,” Reuters, October 3, 2013. http://www.reuters.com/article/2013/10/03/us-turkey-china-defence-idUSBRE99205L20131003. 25 Tulay Karadeniz and Johnathon Burch, “Turkey ‘highly likely’ to sign Chinese missile deal: official,” Reuters, October 3, 2013. http://www.reuters.com/article/2013/10/03/us-turkey-china-defence-idUSBRE99205L20131003. 26 Today’s Zaman, “Erdogan says Turkey open to other missile bids only if China backs out,” October 25, 2013. http://www.todayszaman.com/news-329712-erdogan-says-turkey-open-to-other-missile-bids-only-if-china-backs- out.html. 27 Agence France-Presse, “Turkey says it has received no new bids to rival China missile offer,” December 6, 2013. http://www.hurriyetdailynews.com/turkey-says-it-has-received-no-new-bids-to-rival-china-missile- offer.aspx?pageID=238&nID=59127&NewsCatID=345. 28 Agence France-Presse, “Official: U.S. Has Time to Boost Bid for Turkey Missile System, November 19, 2013. http://www.defensenews.com/article/20131119/DEFREG01/311190013/Official-U-S-Has-Time-Boost-Bid-Turkey- Missile-System. 29 Burak Bekdil, “Turkey on China missile deal: Game not over yet,” Hurriyet Daily News, November 5, 2013. http://www.hurriyetdailynews.com/turkey-on-china-missile-deal-game-not-over- yet.aspx?pageID=238&nID=57367&NewsCatID=483. 30 Burak Ege Bekdil, “Controversy Deepens Over Chinese Air Defenses For Turkey,” Defense News, October 3, 2013. http://www.defensenews.com/article/20131003/DEFREG01/310030021/Controversy-Deepens-Over-Chinese-Air- Defenses-Turkey. 31 Andrea Shalal-Esa, “Raytheon, Lockheed consider fresh bid for Turkey missile defense,” Reuters, November 12, 2013. http://www.reuters.com/article/2013/11/13/us-usa-turkey-china-idUSBRE9AC00Y20131113. 32 Tulay Karadeniz and Johnathon Burch, “Turkey ‘highly likely’ to sign Chinese missile deal: official,” Reuters, October 3, 2013. http://www.reuters.com/article/2013/10/03/us-turkey-china-defence-idUSBRE99205L20131003. 33 Karen Kaya, Turkey and China: Unlikely Strategic Partners (Fort Leavenworth, TX: Foreign Military Studies Office, August 2013), p. 8-10.